FAAC revenue climbs to N6.28 trillion in Q2 2024, as robust Value Added Tax (VAT) and import duty collections offset declining oil earnings. VAT, customs, and excise duties contribute a major share, comprising 72.42% of the total federation account earnings. The Central Bank of Nigeria’s latest economic report shows that non-oil revenue reaches N4.55 trillion this quarter, marking a 32.22% increase over the previous quarter.
This boost from non-oil sources surpasses government projections by 23.07%, helping counterbalance the shortfall in oil revenue, which makes up just 13.23% (N1.73 trillion) of total FAAC income. Oil revenue underperforms targets by 67.30%, as production challenges persist.
Oil Production Challenges
Nigeria’s oil output decreases to an average of 1.27 million barrels per day (bpd) in Q2 2024, down from 1.3 million bpd in Q1 and well below the federal target of 2 million bpd. The decline is tied to ongoing issues such as oil theft, pipeline vandalism, and illegal refining in the Niger Delta. With oil revenue lagging, other income sources like VAT, customs duties, and excise taxes play an increasingly significant role in supporting the federation account.
Impact on Revenue Allocation
This shift away from reliance on oil revenue signals a new approach to FAAC allocations. Traditionally, oil income—distributed among the federal government, 36 states, and local governments—includes a 13% derivation for oil-producing states. A recent tax reform proposal from the federal government suggests applying a similar derivation model to VAT collections, allowing states with higher VAT generation to receive a greater share of FAAC allocations. This proposal has sparked debate, particularly among northern leaders concerned about reduced allocations.
Meanwhile, as federal efforts to increase oil output continue, there is potential for higher FAAC distributions in the future if production levels can recover.
